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Industrial production growth dived to 30-month low of 1.3% YoY in April


According to Rosstat, industrial production growth kept slowing in April and reached 1.3% YoY, the lowest level since a decrease in October 2009, after the 4% YoY increase in 1Q12. This is significantly below the consensus forecasts of 3.2% (Bloomberg) and 2.5% YoY (Interfax), as well as our expectations of 2.8% YoY. Seasonally adjusted industrial production increased 0.1% MoM.

The detailed breakdown reveals that the growth in manufacturing increased to 3.6% YoY in April, from 2.4% YoY in March. Mining added 3.6% YoY, compared with the 2.4% YoY increase in March. However, the growth in utilities (electricity, water and gas distribution) was negative, recording a light drop of 0.6% YoY (vs. the 2.6% YoY increase in 1Q12).

The data suggests that economic growth decelerated last month, contrary to the PMI Manufacturing numbers, which reflected stronger gains in output and new orders in April. The poor industrial production performance last month supports our expectation of a decline in fixed capital investment in April (-2.5% YoY). To remind, weak investment could be the key drag on GDP growth in 2012, in our view. Hence, the recent data is supportive for our end-year forecast of real economy growth at 3.5% YoY in 2012.

Besides, the renewed slowdown in industrial output growth underpins our view about the urgency of supply-side reforms in Russia.

In terms of the CBR’s interest rate decision, we see the regulator keeping policy rates on hold in 1H12. Although last time the monetary authorities ignored the weaker production in March and focused on the strong 1Q performance, we expect that at the next CBR meeting, scheduled for the first half of June, the regulator might be concerned about weaker IP. However, the uncertainty over about the possible effect on inflation from the regulated tariffs hike in July might prevent the CBR from any changes. 

Alexey Moiseev, Aleksandra Evtifyeva, Daria Isakova, Petr Grishin, Dmitri Fedotkin
VTB Capital analyst

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